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Rick Santelli, CNBC reporter and early Tea Party catalyst, interviewed 2013 Nobel Laureate in economics Eugene Fama Tuesday, hoping to find common ground on what he sees as the US Federal Reserve’s risky policy of financial asset purchases known as quantitative easing (QE).
The exchange didn’t quite go to plan for Santelli, who failed to keep his calm:
Central banks wanting to expand the monetary base during tough economic times typically buy short-term bonds to lower short-term market interest rates. But since the US (and many other countries’) short-term rates have for so long been so close to zero, there’s not much point.
Hence the QE thrust from the Fed, which, by purchasing large quantities of longer term debt securities, is able to push longer-term rates downward.
Santelli and others, including many top economists like Stanford’s John Taylor, believe that there are serious risks involved with QE exit on such a grand scale, including interest rate volatility, the potential for out-of-control inflation, and already palpable spillover affects on emerging market currencies and economies.
Fama may have addressed all of these concerns if he hadn’t been interrupted so often.
Santelli is certainly not alone is his fear of QE exit, but next time he might want to call for back up with more sophisticated understanding of monetary economics before challenging Fama.
5 Comments
The WACG
Santelli borders on demagoguery. One day he is going to flip out when a recognized expert doesn’t agree with him, tear off his shirt, and reveal a Tea Party Libertarian Know Nothing Tat across his girlish chest.
Matt
Might I asked for a cup of Tea, Mr. Santelli? Why do tea partyiers sound so off the wall in their normal day to day speaking?
ken in Napa
If monitary expansion has no bad effects then why not eliminate the IRS and its collection of taxes and just keep expanding M2 to pay for govt payables? Why does a libertairian get such bad press? Perhaps we need more of them in the Senate so the AUDIT THE FED bill will be voted upon. The Federal Reserve with its unbridled power to print money has limited the power of the House to perform fiscal restraint and has corrupted the whole system of checks and balances in my humble opinion.
Ken in Napa buying silver
David R.(Canada)
I think someone is trying to get a government job; and it’s not Santelli
BL
The one who’s showing basic ignorance isn’t Santelli. Correct me if I’m wrong, but Fama’s argument is that because the Fed holds Treasurys issued by the Treasury, the government holds them on both sides of the balance sheet. Thus they can simply wipe them off? Ignoring the fact that the mortgage securities aren’t held on both sides of the balance sheet, this would be a direct repudiation of debt. Which is the same as direct monetization. This would, in fact, be the most inflationary move the Fed/Treasury could possibly make.